Bank of Communications (BoCom) plans to set up a wholly owned financial leasing company, according to a company statement to the Shanghai Stock Exchange.

The bank said the leasing company will register in Beijing or Shanghai, with registered capital of no more than 2 billion yuan. The proposal has been approved by the State Council and the bank's board of directors.

The financial leasing company is allowed to operate renminbi and foreign currency leasing businesses, including loans, leasing, deposits and issuing bonds.

Analysts said the move is in line with an industry-wide trend of developing integrated services as banks seek to increase their fee-based incomes.

"It is an important step for banks to diversify their business, following the trend of integrating services," said Qiu Zhicheng, an analyst at Haitong Securities.

"The new business is expected to bring more profits from non-traditional banking businesses," said Gu Junlei, an analyst at Orient Securities.

"It will help attract more clients and make the banks more competitive in the international market," she added.

Qian Kun, an analyst at Pacific Asset Management Co Ltd, said banks have a wider client base compared with traditional leasing companies, which should help them develop leasing services.

But she said banks might encounter problems when they go into the equipment leasing business because they have little experience in valuation.

Related readings:  BoCom bids for struggling trust firm CMB eyes financial leasing  Five banks approved to lease  Bank of Communications IPO draws record US$188B

Since changes to management rules for financial leasing companies took effect in March, five commercial banks have received approval from the government to set up businesses. The five banks were reported to be the Industrial and Commercial Bank of China, China Construction Bank, BoCom, China Minsheng Banking Corp and China Merchants Bank.

At the end of last year, Bank of China announced it had bought 100 percent stake of Singapore Aircraft Leasing Enterprise (SALE), Asia's largest aircraft leasing company, for $965 million. "Bank of China is also expected to gradually transfer its leasing business to financial leasing through SALE," Gu of Orient Securities said.

At the end of 2006, there were 12 financial leasing companies in China. They posted a net profit of 130 million yuan last year.

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